RMIT International University Vietnam

Individual Assignment 3

Subject Code ECON1269

Subject Name International Trade

Location & Campus SG Campus

Student’s name & ID Nguyen Le Thien Quynh -s3777295

Class group SG_G03

Lecturer’s name Dr. Daniel Borer

Due date 25 May 2021

Word Count 2200

"I declare that in submitting all work for this assessment I have read, understood and agreed to
the content and expectations of the Assessment Declaration."
 Question 1-Part A:

South Korea

South Korea Top Five Export Products from 2000 to 2010

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Integrated Circuits Cars Refined Petroleum Computers Passenger & Cargo Ships

Figure 1: South Korea Top Five Export Products from 2000 to 2010 (Source: OEC n.d)

South Korea Top Five Export Products from 2011 to 2018

20.00%
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2011 2012 2013 2014 2015 2016 2017 2018

Integrated Circuits Cars Refined Petroleum Vehicle Parts Passenger & Cargo Ships

Figure 1.2: South Korea Top Five Export Products from 2011 to 2018 (Source: OEC n.d)
 South Korea's Trading Partners (Export) from 2000-2018

6%

25%
45%

11%

13%

China Japan Hong Kong United States Chinese Taipei

Figure 1.3: South Korea’s Top Five Exporting Partners from 2010 to 2018 (Source: OEC n.d)

South Korea's Tranding Partners (Import) from 2000-2018

3.97%

10.20% 17.70%

5.72%

13.70%

China Japan Saudi Arabia United States Australia

Figure 1.4: South Korea’s Top Five Exporting Partners from 2010 to 2018 (Source: OEC n.d)
 South Korea Top 5 Import Products from 2000 to 2010
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Integrated Circuits Crude Oil Petroleum Gas Refined Petroleum Coal

Figure 1.5: South Korea Top Five Import Products from 2000 to 2010 (Source: OEC n.d)

South Korea Top Five Import Products from 2011 to 2018

Intergrated Circuits Crude Oil Petroleum Gas Refined Petroleum Coal

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2011 2012 2013 2014 2015 2016 2017 2018

Figure 1.6: South Korea Top Five Import Products from 2011 to 2018 (Source: OEC n.d)
 Thailand

Thailand Top Five Export Products from 2000 to 2009

9.00%

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Office Machine Parts Intergrated Circuits Computers Rice Rubber

Figure 1.7: Thailand Top Five Export Products from 2000 to 2009 (Source: OEC n.d)

Thailand Top Five Export Products from 2010 to 2018

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018

Computers Integrated Circuits Rubber Refined Petroleum Delivery Trucks

Figure 1.8: Thailand Top Five Export Products from 2010 to 2018 (Source: OEC n.d)
 Thailand Top Five Import Products from 2000 to 2009
18.00%

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Integrated Circuits Office Machine Parts Crude Petroleum Vehicle Parts Gold

Figure 1.9: Thailand Top Five Import Products from 2000 to 2009 (Source: OEC n.d)

Thailand Top Five Import Products from 2010 to 2018

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018

Intergrated Circuits Crude Oil Vehicle Parts Gold Petroleum Gas

Figure 2: Thailand Top Five Import Products from 2010 to 2018 (Source: OEC n.d)
 Thailand's Trading Partners (Export) from 2000-2018

4.87%
10.20%
5.40%

10.30%
12.30%

China Japan United States Hong Kong Malaysia

Figure 2.1: Thailand Top Five Exporting Partners from 2010 to 2018 (Source: OEC n.d)

Thailand's Trading Partners (Import) from 2000-2018

5.01%

6.17% 17.70%

6.32%

14.40%

Japan China United States Malaysia Singapore

Figure 2.2: Thailand Top Five Importing Partners from 2010 to 2018 (Source: OEC n.d)
 South Korea

South Korea trade balance in goods and services in percent of GDP

(2000-2018)
120

100

80

60

40

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-20

Balance of Trade

Figure 2.3: South Korea trade balance in goods and services in percent of GDP (2000-2018)
(Source: Macrotrends n.d)

Thailand

Thailand trade balance in goods and services in percent of GDP

(2000-2018)
60

50
40

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-10

Balance of trade

Figure 2.4: Thailand trade balance in goods and services in percent of GDP (2000-2018)
(Source: Macrotrends n.d)
 South Korea

Trade Openness of South Korea from 2000 to 2018

120

100

80

60

40

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Trade Openness

Figure 2.5: Trade Openness of South Korea from 2000 to 2018 (Source: Global Economy n.d)

Thailand

Trade Openness of Thailand between 2000 and 2018

160

140

120

100

80

60

40

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Trade Openness

Figure 2.6: Trade Openness of Thailand between 2000 and 2018

(Source: Global Economy n.d)
Question 1- Part B:
South Korea
GINI Coefficient of South Korea between 2006 and 2016
2006 31.7
2008 32.3
2010 32
2012 31.6
2014 31.2
2016 31.4

Figure 2.7: GINI Coefficient of South Korea (2006 -2016) (Source: World Bank n.d)

The economic crisis increased GINI coefficient to roughly 32% in 2000 (Ahn 2016), . GINI dipped
to 0.310 (2009) due to the economic recovery. Korea’s inequality due to the rapid population aging,
great wage’s gaps between regular/non-regular workers (Ahn 2016). In 2018, the Gini index hit a
record low, at 34.5%, down 0.009. The improve in equality due to the welfare policies for low-
income bracket from the government (Xinhua 2019).

Thailand
GINI Coefficient of Thailand between 2000 and 2018
2000 42.8
2002 41.9
2004 42.5
2006 41.8
2007 39.8
2008 40.3
2009 39.6
2010 39.4
2011 37.5
 2012 39.3
2013 37.8
2014 37
2015 36
2016 36.9
2017 36.5
2018 36.4

Figure 2.8: GINI Coefficient of Thailand from 2000 to 2018 (Source: World Bank n.d)

Inequality caused by technological transformation, affected negatively to the workers income,

factories shutting down result in unemployment (United Nations Thailand 2020). Thailand’s
government put great effort in adjusting the GINI index, introducing a program Universal Health
Coverage Scheme, protecting the poor and latter from being impoverished (Chandra et al. 2016).
In 2018, Thailand’s GNI index stood at 36.4, ranked 4th in AEAN in income inequality (United
Nations Thailand 2020).

Question 1- Part C:
South Korea
South Korea between 2000-2018 shows a positive trade balance (Export>Import), leading South-
Korea an export-led nation. This benefits the domestic economy by creating more jobs,
contributing to lower the unemployment rate. FDI received by Korea upsurge to $13.1B in 2010,
due to the growing interest in R&D facilities, logistics centers and electronics sectors (GASME
n.d). The country has achieved high-income level as a result of trade openness, with per capita
income of $27,578 PPP in 2010. Trading provide access to inexpensive imported goods, larger
market, more advanced technology, thereby contributing in rapid productivity growth of the
country (Lee 2016). Santacreu (2018) stated that the policy in open to foreign markets are the vital
element in determines its success, turning it becomes top 10 exporters globally, with an increase
of 56.3% in 2012.
Thailand
 Thailand’s data from 2000-2018 had trade surplus, confirmed Thailand to be export-led country.
Thailand good in attracting FDI since the early 2000 occupied the 3rd rank after Indonesia for the
major FDI destination (OECD ilibriary n.d). Since Thailand open to trade, it observed impressive
growth, from $10B in 2003 to $30B in 2012 with its border trade partners. Thailand faced a
significant rise in wage rate, the national minimum has been roughly $10 per day in 2013
(Chirathivat & Cheewatrakoolpong 2015). Since 2016, the GNI per capita of Thailand witnessed
a sharp growth, up to 10% increase in 2018, while a high GNI per capita represented the strong
economic development (Macrotrends n.d). It clarified that Thailand trading had hugely contributed
to the welfare of the country, as it improve the economic and income of residents.

Question 1-Part D:

Heckscher-Ohlin model is an economic theory, advice the country to export what they can produce
most efficiently and plentifully (Kopp 2020). Trade pattern of South Korea likely to appropriate
with a comparative static model of Heckscher-Ohlin, with the changes in skilled and unskilled-
labour endowments. Korea is a skilled-labour abundant country as the high level of export and
education qualification (OECD 2014). Thailand shortage of qualified and vocational workers due
to the academic education bias, meaning they are mainly un-skilled labour (The Nation Thailand
n.d). Integrated circuit is the main exports of South Korea, demand high-skilled and knowledge
labors (Geneva 2007). Thailand exporting rubber done by unskilled workers. Regarding the theory
of HO, the country with skilled-labour abundant will export skilled-labour intensive goods,
exporting products that they produced relatively better than others, and same case with the unskilled-
labour scare country. More exporting activities of South Korea, the wages of skilled labour would
increase, creating incentive for workers improving to be skilled. Minimum wage increases
significantly from 2010, jumped 16.4% in 2017 (appendix 1). As higher demand for skilled labour
and the replace of technology, unskilled labour fell significantly to 93,000 in 2018 (Pulse 2018).
Country would have advantages to access more advanced technology and industry with large
amount of skilled-labour, enhance the trade value and the total country economy welfare. According
to HO, international trade worsen inequality in developed country (Korea) than developing country
(Thailand) (Urata-&-Narjoko 2017). Main disadvantage is the labour wage rises lead to the
difficulty in attracting FDI and trading partners, as they prefer cheap and affordable prices. The flow
of FDI could promote the inequality economic and widen the skilled-unskilled wage gap (Figini et
al. 2006), causing the GINI index increased for both countries, (figure 2.7) Korea and (figure 2.8)
for Thailand.

The Heckscher-Ohlin theory limitations has been criticized by other experts. The model only
concentrated in explaining the patterns of trade base on the basis factors, while ignoring other
influences, particularly transportation costs, economics of scales, and external economic. The HO
theory based on the perfect assumption, leading to the lack of realistic for the model since the real
world is not that perfect and constant. Also, as there is an absence of factors international mobility,
which highly crucial regarding Williams & Levin, the HO theory had conducted an unpersuasive
and unrealistic assumption (Aahana n.d)

Question 2-Part A:

Protectionism is an economic policy of constraining trade between countries, by implementing

restrained regulations to discourage foreign brand entering into the markets (Fouda 2012). In
Thailand, the government most severely protected “automotive” and “alcohol drinks”
industries.

Since 2005, imported alcohol are levied with VAT, customs duty, excise tax, local/municipal tax,
final price highly expensive. The Ministry of Finance placed a quota on alcohol beverages
imported, license issued by the Excise Department must be filled before import, including specific
quantity, production, and transportation (Mendiola-2016). The ad valorem, making the imported
alcohol products to be more expensive under specific tax method (Sornpainsarn,-Shield &-Rehm-
2011). Thailand levied a high import duties and taxes on all imported cars 80% depends on engine
size and power (Vietnam Plus 2018). During 2000-2010, Thailand’s government increased the
tariff rate to 30%. In 2002, BOI launched a “New Automotive Investment Policy”, developing
Thailand in becoming the regional center of automotive industry (Natsuda-&-Thoburn-2011).

Main rationale for government protecting an automotive industry is they are infant industries,
domestic business, or to generate revenues (Uradu 2021). With Thailand automotive industry, the
government had set up an import substitution policy, taxes incentives to boost local industry. Due
to high tariff, domestic cars sale started to escalate in 2012 (appendix 2), peak up in 2015 (Sullivan
2015). Experts believed that the industry is oligopoly in the domestic market, high-import tariffs
could benefits Thai producers to exercise price discrimination between domestic and export
market. Price discrimination allows the manufacturers to control domestic sales, eliminating from
competitions in the more lucrative domestic market, result in price differential (Warr &
Kohbaiboon 2018).

High tariffs on imported alcohol beverages to protect domestic industries from competing, limiting
harm caused by alcohol consumption (Bird 2015). Alcohol consumption recorded to cause
economic burden on society, including health care, property damage and criminal. It largely had
negative impact on economy of Thailand, accounted for 1.99% of the GDP (Thavorncharoensap
et al. 2010). Rationale given by the government for the rising in tax rates was either to reduce the
consumption, generate revenues, shifting the consumers choices to lower taxed and prices
beverages (Sornpaisarn & Kaewmungkun 2014). Tax rate increased would lead to the
enhancement in tax revenue for Thai (Chonviharnpan & Lewis 2016), besides, taxes also targeting
in the economic development, social justice and improve public health systems (Bird 2015).

Question 2-Part B:
Thailand implements a protection for industries to be a shield for its domestic business, preventing
new competitors entering and eroding the prices, generate profits and also limiting the alcohol
consumption. The method is effective when it could reach is core objectives and supporting in the
country economic welfare. Although Thailand’s average alcohol consumption is lower comparing
with Western countries, the drinks has been relatively more common in middle-class and adult
Thai population (Wakabayashiet al. 2015). Thailand has the greatest alcohol consumption, above
average 6.4 liters per year. Nevertheless, consumers are currently consumed more beer since they
were affordable, easy to access, alternative to wines. Tax rate upsurge would lead to the
enhancement in tax revenue for Thai government but does not greatly reduce the consumption
(Chonviharnpan & Lewis 2016), thus, the protectionist is not totally effective from my point of
view. An effective protectionist on automotive industry leading to the rising in domestic cars
demand, thus, require more labors for production. Protection reduces imports and preserve jobs.
(Abboushi 2010). Thailand’s automotive affected positively to the economic growth, committed
to nearly 10% of the total GDP. The industry hired approximately 850,000 workers, clearly
contributing to reducing the unemployment rate of Thailand (Knight 2021). Automotive industry
took less than 50 years to become competitive industry globally with the support policy from the
government, hence, the protectionist method has been practiced effectively.

Question 2-Part C:
The domestic welfare implications within the industries that receive the protectionist of Thailand
are obviously. The policy discourages the imports activity, while promoting exports, benefiting
the local industries to developing prosperous under the government protection. Thailand
automotive industry had significantly developed with less than 50 years, contributed 12% to the
total Thailand’s GDP, worthen $27B in 2016 (Thai Board of Investment n.d). As export-led
country, it would easily attract FDI flows, thus, demand more labor and create employment
(Brincikova & Darmo 2014). As the unemployment decrease, the living standard increase would
result in the wealthier country, making the GDP per capita of Thai had improved significantly
(appendix 3.

Protectionism of the government is likely to have an economic-wide consequences on certain

domestic interest group, including producers, government and customers. The high tariffs on
imported products will translate to an escalation in prices of imported products, diminishing their
purchasing power and restricting the availability of goods. Tariff had a disproportionately impact
low-income household since they demanded more on traded goods. The enhancement in pricing
of imported-intermediaries’ inputs will force the domestic firms to input more costly domestic
markets, leading to the increase in costs to the clients (Dimitrova & Lakatos 2017).

Question 2- Part D:
To improve the economic welfare, the government is advised to adjust it trade protectionist policy
based on the short and long-term objectives. Tariff of automotive is 80% which considered to be
extremely high. If the government reduce the tariffs, it can motivate the imports, creating more
range of choices for customers. Thus, incentive the local businesses to be more efficient and
producing the high-quality products to compete with international firms, which benefits the
consumers (Lamaji 2015). The protectionists on alcohol industry is not most effective, hence, the
government should considered in enhancing higher tariff rate, and practice such other restrict
policy to demotivate the alcohol consumption.

Question 3:
The Stolper-Samuelson Model stated that a rising in product’s price will result in an increase in
price of factor used intensively in that industry, while lessening price of other factors (Lloyd &
Schweinerger n.d). Integrated circuit is the skill-intensive goods (produced by Korea), while
rubber is unskilled-intensive goods (produced by Thailand). If the prices of skill-intensive goods
increase in capital-abundant country, and fall in skill-scare countries, there would be a rise in
skilled wage, and fallen in unskilled wage in the capital-abundant country (Abrego & Edwards
2002). Thus, create the wage gap and increase inequality, GINI index increase, South Korea (figure
2.7) and Thailand (figure 2.8).

Feenstra-Hanson model indicated about the relationship between outsourcing and wage
inequality, a high-relative skill abundant economy would allocate its low-skilled task to abroad
country to lower costs (Horgos & Tajoli 2015). South Korea is the top exporter in electronic
industry, responsible for high-skilled task due to the rich in high-skilled labour (Asialinkbusiness
n.d). Korea outsources Thailand taking the low-skilled task to minimize its production costs
(Errighi & Bodwell 2017). An empirical finding show that offshoring induces a demand for high-
skilled labour, leading to an upsurge in high-skilled workers’ wages. The South Korea’s high-
skilled labour wages increased ,causing the wage gap and the GINI index of such nation decrease
(figure 2.7), however, this is less effective developing in Thailand, which the GINI trend (figure
2.8) decreases. To conclude, the Feenstra model could considered to best suit and most
relevant to the reality of South Korea and Thailand.

Question 4-Part A:
In Vietnam, Nestle had successfully built their through sustainability development within 25 years.
The business has launched program “Active Vietnam” to promotes school sport or “NESCAFE
plan” for sustainable coffee supply chain and farmers income, which largely develop their
reputation and influences in Vietnam (Vietnamnews 2021). In 2003, Nestle faced with baby milk
scandals, promoting bottle feeding and discourage the breast feeding that contributing to the infant
illness. The company images heavily affected, and the scandal still grown up (Muller 2013).
Reported by Clarke (2015), 24 children found to work in Nestle farm and carrying an extreme
dangerous task. Clearly, the company had violated in practicing the child labor in one of their
largest cocoa supply chain. Lastly, Nestle had challenges with Vietnam agricultural value chain,
result in low quality food that directly impacts their images.

Question 4-Part B:
To maintain a good brand image and customer satisfaction, the brand should practice the corporate
social responsibility (CSR) since it the best method to form a positive brand appearance
(Maheshwari & Kumar 2013). Nestle is recommended to set a standard and policy to protect the
rights of the employees. Good working condition and environmentmwill improve the productivity
and dwindle the turnover rates (Kappel 2017). Nestle can organizing programs related to children
support, “free-meal” to provide poor-children meal, collaborate with the World Food Programme.
Nestle should stay connect with their customers, building trusts and loyalty to customers through
the high-quality product. By practicing these recommendations, the company would highly
improve their image and create a beautiful brand awareness in customer perspective.
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APPENDIX:

Appendix 1
Appendix 2

Appendix 3